F
Winning Over the Next
Billion Consumers in Brazil
A Guide for Growth
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Winning Over the Next
Billion Consumers in Brazil
A Guide for Growth
T
wo-thirds of Brazil’s
53 million households
are on the brink of
economic viability
and are eager to join
the consuming classes. While most
global retailers and consumer goods
companies have been concentrating
their marketing efforts on the
wealthiest top third of Brazil’s
market, this huge segment of
potential customers has gone largely
undiscovered. Yet these households
haven’t been avoiding formal
markets so much as they have
been kept out by the absence of
appropriate business models for
serving them with the offerings that
they want.
These 34 million Brazilian households constitute a distinct group of
consumers—the next billion—and
they have been coming into their
own not only in Brazil but also in
Africa, China, India, and Central
and Eastern Europe. If they constituted a nation, the next billion would
be the tenth-largest economy in
terms of GDP. In terms of their
income—which is growing faster
than the economies of their countries—the next billion are situated
just above the poorest of the poor
and just below the radar of most
businesses.
Brazil’s next billion generate nearly
one-third of the country’s total
income, but they are responsible for
almost half of its total spending—
more than $100 billion a year. And
as they become increasingly sophisticated, so do their purchases, which
include branded shampoos and
detergents, and even an occasional
bar of chocolate. Best of all, Brazil’s
next billion are young, with some 40
years of consuming ahead of them.
The next billion may be the largest
untapped consumer segment in the
world, yet for most companies they
represent a formidable challenge. On
the one hand, they are brimming
with pent-up demand for products
and services. On the other hand, up
until now, they have been considered
unprofitable to serve—at least from
the perspective of companies that
view them through the lens of
conventional business models.
To overcome this mindset, organizations must develop a more complex
understanding of the next billion’s
needs, as well as new business
models that provide creative ways to
serve them. Some companies are
already beginning to question their
past assumptions. To their credit—
and to the benefit of their market
share—they are discovering a
W O  N B C  B
potentially valuable segment of
consumers that has been almost
totally neglected by the world’s
major marketers.
Who Are Brazil’s Next
Billion?
The Boston Consulting Group’s
ongoing research in Brazil (as well as
in other parts of the world) is
providing our clients with rich
insights into the needs, aspirations,
and behaviors of the next billion. To
date, we have surveyed thousands of
Brazil’s consumers, conducted
dozens of interviews with Brazilians
in their homes, and brought together
a number of focus groups throughout the country.
The households we visited generate
incomes ranging from $100 to $700
per month, an amount that is adequate for purchasing many of the
discretionary goods that the next
billion seek. (See Exhibit 1, page 2.)
In terms of the five categories of
household income commonly used
in Brazil, the next billion are made
up of the top of the E class (households earning less than one minimum wage per month), the D class
(households earning one to two
minimum wages per month), and the
bottom of the C class (households

Exhibit 1. The Next Billion Are Stuck in the Middle
Global and emerging
middle-class consumers1
Brazilian households (millions)
60
17
53
50
31%
40
Next billion
consumers2
34
30
100%
64%
20
Subsistence-class
consumers3
10
0
2
5%
Subsistence- Next billion
class
consumers
consumers
Global and
emerging
middle-class
consumers
Total
Sources: Pesquisa Nacional por Amostra de Domicílios survey of households, 2005; BCG analysis.
1
Global consumers have a monthly household income above $875; emerging middle-class consumers have a monthly household income
between $700 and $875 ($1 = R$2).
2
Next billion consumers have a monthly household income between $100 and $700 ($1 = R$2).
3
Subsistence-class consumers have a monthly household income below $100 ($1 = R$2).
earning two to five minimum wages
per month).
The number of next-billion households is growing faster than Brazil’s
total population. What’s more,
nearly half of them are located far
from the country’s slums, in neighborhoods where families are increasingly exposed to branded products.
Nearly two-thirds of the next billion
are married, and their households
average four members, of whom at
least two contribute to the household income.
Of course, it is difficult to generalize
about the needs of such a large and
diverse group, but companies that
gain a better understanding of these
consumers will gain a strong advantage. To that end, we have identified
four broad areas in which the next
billion differ from other segments.

They cope with fluctuating
incomes. Contrary to popular belief,
low income is not the biggest limit
on the next billion’s spending. More
than half of next-billion households
save part of their income, and almost
all make tradeoffs in their discretionary spending in order to buy the
things they want. A typical family
spends 39 percent of its income on
food, 23 percent on shelter, 6 percent
on transportation, and 4 percent on
health care products. That leaves
28 percent for discretionary spending, which typically includes 10 percent for financial services, 5 percent
for telecommunications, and 13
percent for other nonessential
expenses.
More than four-fihs of Brazil’s next
billion receive their earnings in cash.
Most pool their money with other
family members, and decisions on
large purchases are oen made
collectively. Yet six out of ten of
Brazil’s next billion do not have
formal jobs, and their income can
vary significantly from week to week.
As a result, they must occasionally
buy on credit or settle for less
expensive products.
Indeed, credit plays a big role in the
economy of Brazil’s next billion.
Practically all of their spending on
financial services (about $14 billion
per year) is related to credit payments. (Approximately half of credit
purchases are for appliances and
apparel.) When they find it difficult
to get credit, about 40 percent of the
next billion consumers we interviewed rely on the good credit of a
family member or friend.
Given their fluctuating incomes, the
next billion are wary of large upT B C G
front outlays. Rather than strain
their budgets, they prefer to finance
expensive products with small
installments paid out over a longer
period. The results of our survey
indicate that the more expensive the
product, the more likely that the
decision to purchase or not will
depend on the conditions of the
credit agreement.
They are beginning to be upwardly mobile. Despite the obstacles,
Brazil’s next billion are determined
to improve their lives and take
charge of their future. (See the
sidebar “Profile of a Brazilian
Family,” page 4.) More than 40
percent of the consumers we
interviewed said that they will
increase their savings in the coming
year, and more than 25 percent told
us that they intend to spend more.
Women are essential to achieving
those goals. Nearly half of Brazil’s
next-billion women supplement their
family’s income by working outside
the home. These women also have
high ambitions for their children,
who, as a result, are better educated
than their parents. Even though 72
percent of the next billion have not
completed high school, they—like
Brazilians overall—recognize the
importance of education.
Nearly all of Brazil’s next billion
have a television at home, so they
are becoming increasingly aware of
the world’s products and brands.
Most own a stove, many own a refrigerator and a DVD player, and a
sizable portion are saving for a
washing machine. Many of these
consumers also aspire to own a
computer, the most desired possession aer a house and a car. The
next billion are willing to trade up in
selected categories—particularly for
high-ticket durables—because they
want to be sure they are getting good
quality for the price.
With their limited incomes, the next
billion must make every cent count.
But that doesn’t mean they will
The next billion
are willing to
trade up in
selected categories.
always go for the lowest price.
Instead, the next billion may take
months to research a purchase,
carefully weighing a product’s
functional, technical, and emotional
benefits. They seek the best that
their budgets will allow, and they
won’t settle for stripped-down
versions of more expensive offerings
if that means compromising on
quality. Because they can’t afford to
make a mistake, the next billion look
for trusted brands and durability.
They also favor products that offer
warranty policies and service
contracts that they can rely on.
Indeed, the lack of a warranty is
their biggest reason for avoiding
secondhand products, even when
they are deeply discounted.
They seek guidance when purchasing new products. Advertisements can help raise awareness of a
product, but they seldom address all
the barriers to purchase. In fact, the
next billion will shy away from
purchasing an unfamiliar item if the
ads fail to explain its benefits clearly.
Instead, recommendations from
trusted sources weigh significantly in
a product’s sales. Brazil’s next billion
actively seek the advice of friends or
W O  N B C  B
relatives in about 20 percent of their
purchase decisions. And the higher
the price, the more consumers are
likely to seek confirmation of a
product’s quality. As one consumer
explained, “We first asked all our
friends who had a music system
about performance, repairs, and
service. Only then did we decide to
buy a slightly costlier brand, because
no one we knew had had a bad
experience with it.”
Retailers, too, can have a strong
influence on purchase decisions.
More than 40 percent of the next
billion consumers we interviewed
said that they first saw their “dream
product” at a store, and almost 60
percent said that a salesperson
helped them make their purchase
decision.
Because they are oen first-time
users, the next billion need comprehensive operating instructions.
Although many manufacturers of
consumer electronics are switching
to slimmed-down user manuals
because their customers are already
familiar with the basic features of
these products, marketers to the next
billion might consider providing
more detailed pictorial instructions
with simple directions in local
languages.
They prefer the familiar. The next
billion put a lot of stock in the
brands they know best. Trust in
what’s familiar is also paramount in
their choice of where to shop. Only
about 16 percent of the consumers
we surveyed patronize hypermarkets; the next billion oen avoid selfservice formats because they find
them intimidating. One housewife
described her experience this way: “I
recently visited a supermarket for

Profile of a Brazilian Family
Jurema is a 39-year-old mother with
two children, ages eight and nine.
She is married, but her husband
doesn’t always live with the family in
their small frame house. Jurema’s
71-year-old mother, who receives a
retirement pension in addition to a
small wage for taking care of another
elderly woman, helps out by contributing to the household income.
Jurema never finished school and is
determined to provide her children
with the best education she can
afford. She earns roughly $250 per
month cleaning offices and homes.
She is paid in cash, and the amount
varies from month to month
depending on the number of
cleaning jobs she has. Because she
can’t show proof of a steady income,
she isn’t always able to get credit.
the first time, and I was surprised to
see that some of the products there
were actually cheaper than products
at my local retailer. But I didn’t buy
anything, because I felt I didn’t
belong there.” When fluctuating
incomes make it necessary to shop
frequently for small amounts,
traveling to a distant supermarket
doesn’t seem worthwhile, especially
if the store feels unwelcoming.
Another advantage of shopping at
local stores is that neighborhood
shopkeepers know their customers
and will oen offer credit in times of
need. These stores also supply
groceries and basic staples in small
packages. As one woman told us,
expressing a sentiment echoed by
almost all of the next billion consumers we talked to, “The most important thing in life is to have food in
the cupboard.” Consequently, credit

Therefore, Jurema asks her mother
or friends to purchase the goods she
wants, relying on their ability to
secure credit. That’s how Jurema got
her new television and cell phone.
Now she is paying her mother every
month to cover the installments. Her
mother is always first on her list to
be paid, Jurema hastens to add,
because she doesn’t want to
disappoint her.
When it comes to packaged goods,
Jurema is attracted to well-known
brands and looks forward to being
able to purchase them when she has
a bit of money le over from her
salary. But when times are lean, she
will trade down in order to avoid
having to buy less of what she needs.
“I am loyal to branded products if I
can afford them. If there is no money,
and small, less-expensive package
sizes are greatly appreciated.
A New Way of Doing
Business
As the market for high-income
consumers in developing countries
reaches saturation, pursuing the next
billion has become a strategic imperative for global and local companies.
The rapid growth of this segment
and its desire for upward mobility
offer a huge opportunity to all consumer companies.
To be sure, serving this segment
won’t be easy. Many companies have
tried and failed. Instead of seeking to
understand the unique needs of the
next billion, those players simply
graed their traditional business
models onto what is, in fact, a very
different market.
I will choose the low-cost option,”
she explains. But even when she
trades down, quality is as important
as price. So Jurema always buys
products that she knows and trusts.
She shops mostly at the corner
market because she has no way of
traveling to distant hypermarkets.
But even if she could get a ride, she
says, she would prefer the corner
store because the owners know her
and are sometimes willing to extend
her credit when her week’s wages
won’t cover a needed item or two.
Despite the hardships of Jurema’s
life, she is optimistic about the
future and eager to try new products. She is determined to let nothing stand in the way of providing a better life for herself and her
family.
The results were not surprising:
products that were either too expensive or too cheap stayed on the
shelves in stores that were intimidating to customers. Advertisements
weren’t suited to the target audience.
And high-cost, asset-intensive distribution channels made the ventures
unprofitable.
Succeeding in this market will call
for creative ways of doing business. It
will require that companies venture
into distant small towns and unfamiliar neighborhoods in big cities to
offer new products through new goto-market approaches.
Companies will also need to rethink
their organizations, including the
metrics they use to make go-no-go
decisions. For example, the contribution margin on a low-price detergent
targeted to the next billion may
T B C G
The secret to succeeding with the
next billion is to understand them
on their own terms—and develop
business models accordingly. Some
businesses may be able to venture
on their own into markets serving
these consumers, but more likely,
they will need to collaborate with
other players. Companies that are
open to new ways of doing business
stand to win a disproportionate
share of the significant revenues and
profits that the next billion promise
to deliver.
Guidelines for Success
with the Next Billion
Design products that the next
billion want and can use. Rather
than “dumb down” global brands,
companies should adapt their
products and prices to the specific
needs of the next billion.
◊ Make products more affordable.
One of the best ways to achieve
this goal is to use less expensive
and smaller packages. Most of
the women we spoke with, for
example, prefer an inexpensive
shampoo for daily use and branded shampoos for special occasions. Yet many branded offerings
are expensive and available only
in sizes that would take months,
if not years, for such customers
to use up. With a minimal investment in packaging, a producer
might offer small packets of
its branded shampoo at much
lower prices. This trial size
would also encourage new
consumers to experiment with
the brand.
◊ Develop products that the whole
family can use. Since families tend
to use pooled funds for expensive
purchases, such products should
appeal to all family members.
◊ Emphasize quality. Because the
next billion can’t afford products
that break down, they will
sometimes pay a premium for
quality they can trust—even if
they have to use credit or make
tradeoffs with less expensive products in another category.
Establish new distribution networks. When it comes to distributing their products in cities and across
the countryside, companies wrestle
with tradeoffs among cost, coverage,
and control.
◊ Broaden the product’s reach by
leveraging low-cost, well-established
channels. In India, for example,
one consumer-goods company
outsources the last mile of its
distribution network to Shakti
Ammas—women who act as
entrepreneurs in small villages.
Exhibit 2. Companies Must Apply Consumer Insight
and Economic Levers to Five Design Principles
Consumer
insight
us
ito on
iqu uti
Ub strib
di
Once a company has generated
sufficient insights into the needs of
the next billion, the next step is to
translate this knowledge into
products and practices that will turn
these consumers into profitable
customers. By following the five
practices listed below, our clients
have overcome many of the challenges that have stymied their
competitors. (See Exhibit 2.)
◊ Price for the budgets of the next
billion. For many products, pricing
will involve some consideration of
credit terms. Producers and
retailers of big-ticket items, such
as durable goods, should offer
financing tailored to the next
billion’s budgets in order to
increase sales.
Ap
p
pr rop
od ria
uc te
ts
amount to only 18 percent, whereas
a high-end product from the same
company could contribute as much
as 25 percent. At first glance, the
return on the low-price product
seems insufficient. Yet when the
investment each product requires is
taken into account, the return on
capital for the low-price product is
likely to approach 90 percent—
almost five times more than the
return on the pricier product.
Unshackled
organization
Economic
levers
Educational
marketing
Partnerships
and alliances1
Source: BCG analysis.
1
Partnerships and alliances are on the outside of the circle because they depend heavily on
cooperation with third parties.
W O  N B C  B

They receive the company’s
products through the mail and
distribute them throughout the
neighborhood. Another company
in India gives its salespeople
bicycles to reach villages with
populations of less than 5,000.
◊ Reduce the amount of sales volume
necessary to break even. In one
approach, companies distribute
their products along with those of
other businesses that are also
targeting the next billion. For
example, two consumer-goods
companies in Brazil partnered to
share distribution costs and reach
the next billion through door-todoor sales.
◊ Find creative ways to overcome
infrastructure constraints. Some
Brazilian banks, for example, rely
on lottery shops and post offices
to offer financial services. As a
result, more than one-quarter of
Brazil’s municipalities now have
access to services that they
otherwise would not have.
◊ Make new products available in
channels where the next billion shop.
Companies that take this approach can capture discretionary
spending.
◊ Work with local retailers. Such
retailers oen have loyal followings and are accustomed to selling
small volumes at low prices.
◊ Develop a network of small local
stores. Companies that take this
step should make sure that store
shelves are reliably stocked, that
sales associates give customers
good guidance, and that store
layouts feel familiar to the next
billion consumers.

Develop distinctive marketing programs. Because the next billion are
oen unfamiliar with the operation
and benefits of a product, companies
should create marketing programs
that are as educational as they are
persuasive.
Companies should
create marketing
programs that are
both educational
and persuasive.
◊ Educate consumers about product
benefits. In India, sales of soap
greatly increased once consumers
learned about the importance of
washing their hands.
◊ Create word-of-mouth advocacy by,
for example, enlisting self-help
groups. One consumer-goods
company in India identified a
community’s key opinion makers
and developed a partnership with
them to market products in the
neighborhood. The company’s
offerings now reach 80,000
villages, which account for about
15 percent of its rural sales.
◊ Aim for trust and identity in
branding. The next billion consumers are generally more willing to
accept an unfamiliar product if it
carries a known brand. When a
brand enjoys a reputation for
value, the opportunity exists to
launch brand extensions and new
products under its good name.
◊ Support first-time users with clear
operating manuals and free trials.
This approach is especially
necessary for complicated products, such as computers and TVs
with remote controls, and for
products that might be perceived
as potentially damaging, such as
hair dyes (“What if it turns my
hair green?”).
◊ Nurture customer relationships. The
next billion are more likely to
trust a friend or family member
than a salesperson they don’t
know. A Brazilian retailer has had
notable success with salespeople
hired from the same neighborhoods where its customers live.
Unshackle the organization. When
they first entered emerging markets,
most multinational companies
focused on serving the affluent
segment. As a result, their cultures,
organization structures, and metrics
are likely to be out of step with the
next billion.
◊ Assign separate teams for developing
new offerings, new distribution
channels, and new marketing
programs. A centralized, top-down
approach can inhibit the initiative
required to develop innovative
ways of serving the next billion.
Many global consumer-goods
companies in Brazil are establishing focused, empowered teams to
implement a low-income strategy
in areas where next-billion
households are concentrated.
◊ Network for innovation. Learning
from and exchanging best
practices with companies already
serving low-income consumers
can accelerate the innovation
process. Global companies could
leverage their presence in emerging markets for scalable strategies.
They might also acquire local
companies to speed the process of
understanding the next billion
T B C G
and developing appropriate
brands and business models.
◊ Create accountability. The next
billion need a champion within
the organization. Some companies
establish a separate unit led by a
senior executive, but more modest
approaches can also work. A
respected marketing manager, for
instance, could lead the programs
and processes necessary to win
the next billion consumers.
Rigorous metrics will help to
strengthen accountability and to
measure results.
◊ Keep costs low. Where appropriate,
companies can share services and
outsource activities that they can’t
perform profitably themselves.
Form partnerships and alliances.
Companies that bring together the
most effective practices across
multiple industries can achieve an
unassailable advantage.
◊ Leverage third-party assets. Work
with companies in other categories or industries to create
innovative packages and bundles
of products and services. FM
radios bundled into mobile
handsets, for example, are proving
to be a major draw in Brazil.
◊ Partner with other companies to
broaden reach and create scale
advantage in logistics, marketing,
and sales. For example, an appliance manufacturer and a detergent producer share marketing
costs in Brazil by advertising a
washing machine and detergent
together.
◊ Share complementary capabilities.
Enlist banks and financial institu-
tions to provide creative ways for
consumers to pay for the goods
they want.
◊ Establish clear governance. When
working with outsiders to broaden
reach and lower costs, companies
will need to manage these partnerships through clear structures
and mechanisms for making
decisions and resolving disputes.
Getting Started
To develop a comprehensive strategy
for serving the next billion, consumer goods companies and retailers
should begin by taking their organizations through the following list of
questions. The challenges may seem
daunting, but bear in mind that
some companies have already
followed this path with considerable
success.
◊ Does our company possess the
right capabilities for serving the
next billion today?
◊ How can we ensure an effective
and focused approach to the next
billion? Is it feasible to design a
new organization model that
fosters experimentation, focuses
on core activities, and encourages
collaboration with other industries? What will such an approach
require?
T
oday, the next billion “nation” is on the cusp of high
growth and voracious consumption, just as India was in the
1990s and China was in the 1980s.
The right offering, coupled with the
right strategies for serving the next
billion, will help transform this
segment into a source of long-lasting
profits. The choice is clear: either
create a business model to capture
the next billion consumers or remain
on the sidelines, watching your
competitors charge ahead.
◊ Is our understanding of the next
billion’s needs and aspirations
aligned with our products’
features, our distribution systems,
and our marketing approaches?
◊ Should we rethink the value chain
in order to increase the next
billion’s access to our products
and services?
◊ Can we strive for quick wins—
while also encouraging repeat
purchases—by developing a
more attractive offering? (This
approach could include changes
in the product’s packaging,
formulation, and volume, in the
channel mix, or in financing
arrangements.)
W O  N B C  B

About the Authors
Acknowledgments
For Further Contact
Marcos Aguiar is a partner and
managing director in the São Paulo
office of The Boston Consulting
Group. You may contact him by
e-mail at [email protected].
The authors thank their colleagues
Vikram Bhalla, Patrick Ducasse,
Emmanuel Huet, Nimisha Jain,
Arvind Subramanian, and Rafael
Zapparoli. They would also like to
thank Sally Seymour for her contributions to the writing of the report
and Barry Adler, Katherine Andrews,
Gary Callahan, Mary DeVience,
Angela DiBattista, Gina Goldstein,
and Sara Strassenreiter for their
contributions to its editing, design,
and production.
BCG’s Consumer practice sponsored
this report. For inquiries about the
Consumer practice, please contact its
global leader:
Olavo Cunha is a partner and
managing director in the firm’s São
Paulo office. You may contact him by
e-mail at [email protected].
Michele Pikman is a project
leader in BCG’s São Paulo office.
You may contact her by e-mail at
[email protected].

Patrick Ducasse
Senior Partner and Managing Director
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